Question #29
Reading: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers
PDF File: Reading 27 Valuation and Analysis of Bonds With Embedded Options - Anwers.pdf
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Question
How does the value of a callable bond compare to a noncallable bond? The callable bond value is:
Answer Choices:
A. lower or higher
B. lower
C. higher. Explanation Since the issuer has the option to call the bonds before maturity, he is able to call the bonds when their coupon rate is high relative to the market interest rate and obtain cheaper financing through a new bond issue. This, however, is not in the interest of the bond holders who would like to continue receiving the high coupon rates. Therefore, they will only pay a lower price for callable bonds. (Module 27.1, LOS 27.b)
No explanation available for this question.